MR. JUSTICE S. RAVINDRA BHAT
MR. JUSTICE R.V. EASWAR
MR. JUSTICE S.RAVINDRA BHAT (OPEN COURT)
% 1. The writ petitioners claim directions for quashing of Circular No. 47/2005-06
dated 23.01.2006. The writ petitioners in the first writ petition, i.e. W.P. (C) 2921/2006
claim to be an association of petroleum dealers in Delhi. Similarly, the second petitioner -
BPCL Petrol Dealers Association, another Association, is an individual petrol dealer -
and a partnership firm; it is represented by one of its partners.

2. Briefly the facts urged in both the proceedings are that the petitioners are
petroleum dealers, who receive petroleum and other such supplies, and are engaged in
WP (C) 2921/2006, 4669-70/2006 Page 1
retail dealership of such products sale. In terms of the Delhi Value Added Tax Act, 2004
(DVAT), Value Added Tax (VAT) is levied at the applicable rate on the entire sale on
the turn-over in question at the point of sale. Apparently the product undergoes
evaporation loss of around 0.6% for petroleum products. However, the tax at the point of
purchase is paid on the value of entire goods as if the whole quantity of petrol is actually
received. At the time of sale, when credit is claimed, the dealer adds the cost of purchase,

- the commission (by the petroleum company or corporation, as the case may be) and
administrative costs. It is argued that even the evaporation loss component is added as
credit claim. In these circumstances, the impugned circular was issued in January 2006. It
reads as follows:

"CIRCULAR NO. 47 OF 2005-06
It has been brought to the notice of the Commissioner that some
Petrol Pump dealers in Delhi are claiming input tax credit on their
purchases in respect of the total purchased quantities. As regards sales,
the dealer are showing sales of quantity lower than that purchased the
difference being on account of loss due to evaporation etc.
In this connection, attention is drawn to sub-rule (3) of rule 7 of
Delhi Value Added Tax Rules, 2005, reproduced as under:-

"Where any goods or goods manufactured out of such goods are lost or
destroyed, the dealer shall not be eligible to claim tax credit on such
goods and the credit taken in any earlier tax period shall be reversed in
the tax period in which goods are claimed to have been lost or destroyed."

The revenue implications, calculated on the basis of a standard
evaporation of 0.5% allowed by the companies as reported, are
approximately to the tune of 35% of net tax payable by a petrol pump,
which the department is supposed to have been losing by this prevalent
practice in this trade.

This is illustrated by a calculation on following assumptions:

1000 litres of, say, petrol is purchased. Purchase cost, i.e.
Rs.42480/- @ Rs.42.48 per litre (inclusive of 20% VAT), which makes out
an input tax of Rs.7080/-. Considering standard allowance of 0.6% on
account of evaporation made full use of by the dealer, 994 litres of the
petrol is sold for Rs.43229/- @ Rs.43.49 per litre (inclusive of 20% VAT).

However, in light of the rule position mentioned above, input tax
credit of Rs.43/- for a litres of petrol (@ Rs.42.48) can not be claimed by
the dealer and needs to be reduced i.e. the net input tax credit would be
Rs.7037/- (Rs.7080-Rs.43). In case the excess input tax credit has already
been availed, it will have to be reversed by the excess amount availed.
This suggest that next retailer in the chain needs to pay an additional 16.8
paise per litre on account of value addition ignoring the loss on account of
evaporation.

The Zonal Joint/Deputy Commissioners must arrange meetings
with petrol pump dealers and clarify the legal position to them and advise
them to reverse the input credit claimed by them on such evaporated
quantities accordingly.

The ward/operational unit officers shall also take suo motu notice
of such instances and do the needful in the interest of Government revenue
in terms of provisions of Delhi Value Added Tax Act, 2004 and rules
framed thereunder.

This issues with the prior approval of the Commissioner, VAT."

3. The petitioners argue that the direction issued by the Commissioner is without
authority of law since it encroaches on the power and functioning of quasi-judicial bodies
who are enjoined to take into account all relevant circumstances and facts which include
the claim for credit for the evaporation loss said to have been loaded on to the cost at the
time of sale to customers. It was submitted that having once claimed tax credit for tax
payable on the component despite evaporation loss, at the time of supply, the
Commissioner could not have, consistent with logic and consistent with the right of the
dealers, at one stroke, directed the assessing authorities to disallow such credit and make
reversals.

4. Learned counsel for the Revenue relied upon the powers vested in the
Commissioner - more particularly, Section 7. It was urged that the circular cannot be
read as a direction to take a particular position with regard to assessment proceedings but
has to be construed more as a guidance. Learned counsel emphasized that if the Court
were to accept the petitioner's contentions, the Commissioner would be denuded of its
WP (C) 2921/2006, 4669-70/2006 Page 3
powers under Section 67(2) of the Act.

5. Section 67 of the VAT reads as follows:

"67 Powers and responsibilities of the Commissioner
(1) The Commissioner shall have responsibility for the due and proper
administration of this Act and shall have jurisdiction over the whole of
Delhi.

(2) Subject to sub-section (3) of this section, the Commissioner may,
from time to time, issue such orders, instructions and directions to any
Value Added Tax authorities as he thinks fit for the due and proper
administration of this Act and all such persons engaged in the
administration of this Act shall observe and follow such orders,
instructions and directions of the Commissioner.
(3) No order, instruction or direction may be issued by the
Commissioner to a person
exercising the power to determine -

(a) a particular objection made or to be made under section 74 of this Act;
or

(b) a particular question under section 84 of this Act; so as to require the
person to determine the objection or answer the question of a particular
person in a particular manner.

(4) Nothing in sub-section (3) shall prevent the Commissioner from
issuing general orders, instructions and directions to any person who
determines objections under section 74 or answers questions under
section 84 of this Act about the manner of determining classes of
objections or answering classes of questions."

6. Section 74 enables a person dissatisfied with an assessment order under the Act to
object against it before the Commissioner, who after considering them (i.e. the
objections), can make any orders. These objections can be preferred within a period of 60
days from the issuance of the original assessment order. Section 84 which has also been
referred to in Section 67 reads as follows:

"84 Determination of specific questions
(1) If any determinable question arises, otherwise than in proceedings
before a court, a person may apply in the prescribed manner to the
Commissioner for the determination of that question.

(2) Subject to sub-section (3) of this section, an application for the
determination of a
WP (C) 2921/2006, 4669-70/2006 Page 4

determinable question may be made in respect of a proposed transaction,
a transaction that is being undertaken, or a transaction has been
concluded.

(3) An application for the determination of a determinable question
may not be made after -

(a) the Commissioner has commenced the audit of the person pursuant to
section 58 of this Act; or

(b) the Commissioner has issued an assessment for the tax period in which
the transaction that is the subject of the determinable question occurred.

Explanation.- For the purposes of this sub-section, the Commissioner
shall be deemed to have commenced the audit of a person under section
58 of this Act when the Commissionerserves a notice to this effect.

(4) For the purposes of this section, the following shall be
determinable questions:-

(a) whether any person, society, club or association or any firm or
any branch or department of any firm is or would be a dealer;

(b) whether any dealer is or would be required to be registered
under this Act;

(c) the amount of the taxable quantum of a dealer for a period;

(d) whether a transaction is or would be a sale, or requires an
adjustment to be made undersection 8 of this Act arising out of a
sale;

(e) whether a transaction is or would be in the nature of works
contract, or transfer of right to use any goods;

(f) whether a sale is not liable to tax under section 7 of this Act;

(g) whether a sale is exempt from tax under section 6 of this Act;

(h) the sale price of a transaction;

(i) the proportion of the turnover or turnover of purchases of a
dealer which arises in a taxperiod, and the time at which an
adjustment to tax or tax credit arises;

(j) whether any transaction is or would be the import of goods;

(k) the value of any goods imported into Delhi;

(l) the rate of tax that is payable on a sale or import of goods and
the classification of the goods under the Schedules;

(m) whether a transaction is the purchase of goods, or requires an
adjustment to be made under section 10 of this Act arising out of a
purchase;

(n) the amount of any tax credit to which the dealer is entitled in
respect of a purchase or import of goods;

(o) the amount of any tax credit in respect of any used goods
purchased by a dealer;

(p) the location of any sale or purchase;

WP (C) 2921/2006, 4669-70/2006 Page 5

(q) the application of a composition scheme in the circumstances
of the dealer; or

(r) the tax period of a dealer.

(5) The Commissioner shall make the determination within such period as
may be prescribed.

(6) Where -

(a) the Commissioner fails to make a determination under this
section within the time Sec. 85 Delhi Value Added Tax Act, 2004
prescribed under sub-section (5) of this section;

(b) the person thereafter implements the transaction which is the
subject of the application and in the manner described in the
application; and

(c) the person has, in the application for the determination of the
determinable question,indicated the answer to the determinable
question which the person believes to be correct (in this section
called the "proposed determination"); the Commissioner shall be
deemed for the purposes of this Act to have made and issued to the
person on the day after the expiry of the prescribed period, a
determination of the determinable question in the terms of the
proposed determination.

(7) The Commissioner may -

(a) direct that the determination shall not affect the liability of any
person under this Act with respect to any transaction effected prior
to the determination;

(b) limit the period for which the determination will apply;

(c) limit the transactions to which the determination will apply;
and

(d) impose such other limitations or restrictions on the
determination as seem appropriate.

(8) If any such question arises from any order already passed under
this Act or under the Delhi Sales Tax Act, 1975 (43 of 1975) or the Delhi
Sales Tax on Works Contract Act, 1999 (Delhi Act 9 of 1999) or the Delhi
Tax on Entry of Motor Vehicles into Local areas Act, 1994 (Delhi Act 4 of
1995), as then in force in Delhi, no such question shall be entertained for
determination under this section but such question may be raised in an
objection or appeal against such order.

(9) Where -

(a) the Commissioner has issued to a person a determination in
respect of a particular transaction; and
WP (C) 2921/2006, 4669-70/2006 Page 6

(b) the person implements the transaction based on the
determination issued to him under this section and in the manner
described in the application; no assessment may be raised by the
Commissioner against that person which is inconsistent with the
determination and no penalty may be imposed on the person if the
determination is later held incorrect.

(10) The Commissioner may, by notice served on the person, withdraw
or qualify a determination issued under this section but such withdrawal
or qualification shall not affect the entitlement of any person to rely on the
determination with respect to any transaction or action which he has
commenced or which he has completed prior to the withdrawal or
qualification."

7. Section 67 empowers the Commissioner to decide or determine specific
questions. It places in position an elaborate procedure for determination of such
questions; it is not as if all questions can be taken on board and decided as specific
questions by the Commissioner. It would be apparent from Section 84 that determinable
questions which might call for decisions in a particular assessment proceeding [as long as
it is not pending before the Court of law and is not covered by situations spelt-out in
Section 84(3)], can be answered by the Commissioner. Such decisions of Commissioner
have binding effect on the party in terms of Section 84(9). These proceedings are akin to
advance ruling proceedings enacted in various fiscal statutes such as Income Tax Act,
Central Excise Act etc.

8. This Court had earlier occasion to deal with a similar question as to the
interpretation of a circular which made a policy declaration binding upon assessing
authorities, enjoining them to follow a particular interpretation. In Sita Juneja &
Associates and Ors. v. The Commissioner of Sales Tax (CWP 1932/1998, decided on
22.09.1998), the Division Bench had noticed previous rulings of the Supreme Court in
Orient Payer Mills v. Union of India 1978 (2) ELT (J345); State of Madhya Pradesh v.
G.S. Dall and Flour Mills 1991 (187) ITR 478 etc. The Division Bench specially relied
on the Supreme Court judgment in Orient Paper Mills (supra) that quasi-judicial bodies
cannot be controlled by directions issued by a Board or such authority and that no
authority howsoever highly placed can exercise powers of judicial or quasi-judicial
authority. The Division Bench then went to hold as follows:

WP (C) 2921/2006, 4669-70/2006 Page 7
"15. The officials of the Sales Tax Department are administrative
authorities. However, such of the officials as are vested with jurisdiction
to assess the business transactions of the dealers to tax, discharge function
which is judicial in nature. The function though administrative is obliged
to be performed with judicial approach and hence becomes quasi-judicial.
The basis requirements of justice have to be complied with. Rules of
natural justice have to be followed. Objectivity has to be maintained. The
conclusions arrived at by the assessing authorities have to be based on the
material available on record and supported by reasons.

16. Whenever judicial or quasi-judicial power is vested in a person,
the decision must be his. Even though he may obtain the assistance of
other persons, he cannot be influenced by anyone in coming to the
decision. In short, the jurisdiction so conferred can be either be tempered
nor tinkered."

9. It is brought to the notice of this Court that recently, in a decision of the Supreme
Court (Commissioner of Central Excise, Bhopal v. Minwool Rock Fibres Ltd. 2012 (278)
ELT 581), somewhat similar questions had arisen. The Central Excise authorities had
relied upon a circular to urge that the Central Board of Excise and Customs had taken a
particular view as regards relevant head within which the goods had to be assessed which
the adjudicating authorities had to respect. The Court held as follows:

"In our view, the departmental circulars are not binding on assessee or
quasi judicial authorities or courts and therefore, in that view of the
matter, the circular/instructions issued by the Board, would not assist
them."

10. The Revenue had urged in the course of the proceedings before this Court that
Section 67 made a departure from the pre-existing Delhi Sales Tax Act. Learned counsel
particularly had emphasized that while deciding Sita Juneja, (supra) the Division Bench
had noticed that no power existed with the Revenue or its authorities to issue such
directions. In this Court's opinion, the existence of Section 67(3) is of no assistance.
Facially Section 67(3) supports the submission of the petitioner that no direction of the
kind made by the impugned circular could have been issued by the Commissioner. If
understood in its proper perspective, the impugned circular dated 23.01.2006 (No.
47/2005-06) in this case cannot be said to fall within the power of the Commissioner at
all. In other words, if the circular purports to direct the assessing or quasi-judicial
authorities to take a particular view and not grant credit in respect of evaporation loss,
WP (C) 2921/2006, 4669-70/2006 Page 8
that is not to be interpreted as binding; the assessing authorities, of course, are entitled to
take into consideration Revenue's concerns, as are permitted by law, while examining the
claims for credit at the point of sale to their customers.

11. In view of the above, it is hereby directed that the impugned circular dated
23.01.2006 (Circular 47 of 2005-06) shall not bind the authorities into taking a particular
view to disallow the claims for the evaporation losses claimed as credit by the petitioners
at the point of sale to their customers. Such claims shall be examined and taken into
account by the assessing authorities on a factual basis. The Revenue's arguments too
shall be taken into account. All the assessing officers and other authorities under the
Delhi VAT Act shall frame assessments in accordance with law. It is also clarified that
during the pendency of the present proceedings, if any assessment has been completed,
and assessees are aggrieved on account of the reliance placed on the circular, it shall be
open to them to avail of their remedies by way of objections. However, the objection
hearing authorities/appellate authorities or the Tribunal shall hear objections or grounds
that are filed within six weeks from today. The concerned authorities shall take into
account the fact that the present proceedings were pending, and wherever required, may
not insist on the strict application of the provisions of limitation, provided the
objections/arguments/claims in this regard pursuant to present judgment are preferred
within six weeks from today. In view of the above order, the Court does not deem it
appropriate to consider larger questions sought to be urged. It is also clarified that these
directions shall not be construed as reflection on merits of individual claims of
petitioners/before the concerned authority under the enactment. The writ petitions are
disposed of in the above terms.